Coeur Mining Inc (NYSE: CDE) delivered a solid performance to investors in 2016. That's the past. The company's outlook is what's more important. The big question for this miner is, can it keep the trends going strong, or will it lose its way? As you analyze Coeur's results through 2017, here are three big-picture issues to keep an eye on.
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Image source: Coeur Mining
Keeping costs in check
In 2014, Coeur Mining's all-in sustaining cost per silver equivalent ounce was $19.27 per ounce. The company is expecting that number for 2016 to range between $15.75 and $16.25. There are two things to keep in mind here -- the improvement and the trend.
With commodity prices heading lower after 2011, Coeur pretty much had no choice but to focus on cost-cutting. It was a survival issue. However, silver and gold prices started to tick higher in early 2016. It's easy for a miner to allow costs to get out of hand in good times.
Coeur is a marginal miner at this point since its costs are pretty close to the current prices it's getting for its wares. If the company takes its eyes off the ball and costs go up, it could be the difference between making money and losing money. In 2017, Coeur needs to prove that it can keep its costs at acceptable levels, or better yet, push them even lower.
Coeur has been hard at work improving its balance sheet. Image source: Coeur Mining Inc
Coeur started 2016 with roughly $480 million in long-term debt, just over 50% of its capital structure. That's a lot of leverage for a commodity company that sells precious metals prone to swift and extreme price swings. By the third quarter of 2016, the company had pared its debt to $390 million.
But during the fourth quarter, it sold $200 million worth of stock so it could further trim debt. The result? The company expects to end the year with roughly $215 million worth of debt. Using back-of-the-envelope math, it looks like Coeur's debt will be a much more manageable 25% (or so) of the capital structure when it reports full-year results. That's a lot of good work!
As 2017 progresses and in future years, you'll want to make sure that debt doesn't get out of hand. On that score, be mindful of the company's use of the debt-to-EBITDAmetric. Although it's an important statistic, the often volatile price of silver and gold plays a big role in EBITDA. This is why you also should remain mindful of the role debt plays in the miner's capital structure.
The best opportunities
One of the reasons why Coeur has been able to reduce costs and cut debt is that it's been refocusing on its best assets. In 2016, that meant selling non-core properties while putting money to work expanding existing mines and paying down debt. Its first big move in 2017 shows that that playbook is still being used, since Coeur sold the non-core Joaquin mine to Pan American Silver (NASDAQ: PAAS) for $15 million in cash and $10 million worth of Pan American stock.
Hard work on the disposition front in 2016. Image source: Coeur Mining Inc.
Coeur has a host of projects in the work at existing assets, from exploration to efficiency improvements. In 2017, it needs to prove that it can remain focused on its highest-return opportunities, and that the money it spends produces results. If you're keeping an eye on costs, you'll be able to see if the efficiency efforts pay off, but be mindful of production levels, too.
If Coeur wants to grow, it will need to find ways to increase production without over-leveraging itself. If it just sticks to the current script in 2017, it should be fine this year. However, you'll also want to think about the years beyond 2017 and what this year's efforts suggest for the miner's long-term outlook.
Staying on course
Coeur Mining is a marginal miner. However, that doesn't mean it hasn't put in a lot of work to get itself to where it is financially and operationally. As gold and silver prices strengthen, the company can't let the discipline that got it to where it is today fade. Basically, in 2017, Coeur needs to keep doing more of the same. it has to prove it can keep costs low (or get them lower), keep leverage levels down, and focus its efforts where they will have the biggest impact.
Selling the Joaquin mine looks like a step in the right direction. But 12 months is a long time, and investors need to keep watching.
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